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AvalonBay Communities (AVB) Issues Q1 Rental Revenue Outlook

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In the recently-issued operating update for the first quarter of 2018, AvalonBay Communities, Inc. (AVB - Free Report) stated that it expects total rental revenues for established communities to be up 2.3–2.4% year over year.

Notably, in the prior quarter, the company had reported 2.2% growth in total revenues for established communities. Results indicated increase in average rental rates and economic occupancy. Specifically, for fourth-quarter 2017, average rental rates were up 2.1% year over year, while economic occupancy inched up 0.1% from the year-ago quarter.

AvalonBay has high quality assets located in some of the premium markets of the country, which enable the company to generate steady rental revenues. In fact, the company delivered the seventh consecutive year of above-sector average core funds from operations (FFO) per share growth, which is encouraging. Based on its strong fundamentals, we expect this uptrend to continue. Increasing consumer confidence on the back of job growth, rising wages and a healthier balance sheet promise bright prospects for AvalonBay.

However, new apartment deliveries are anticipated to remain elevated in the near term and this has emerged as a pressing concern for the residential REITs, including AvalonBay, Equity Residential (EQR - Free Report) , Apartment Investment & Management Co. (AIV - Free Report) and Mid-America Apartment Communities, Inc. (MAA - Free Report) .

Particularly, for AvalonBay, considering the regions, deliveries are projected to increase in both Southern California and the Pacific Northwest. Additionally, supply continues to be most noticeable in the urban submarkets. This high supply in a number of the company’s markets is likely to put pressure on rental rates. Hence, growth in its stabilized portfolio might remain modest in the upcoming period. Furthermore, there is high concession activity amid elevated supply, which remains a concern.

Currently, AvalonBay has a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock has depreciated 13.0% over the past three months, underperforming the 12.1% loss incurred by the industry it belongs to.



Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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